Zero revenue growth for the global hearing aid market in 2012? That’s among the nuggets in the good-news-bad-news first-half financial report from William Demant Holding A/S, parent of the Oticon and Bernafon hearing aid brands.
The good news is the company saw a nine percent increase in unit sales of its hearing aids in the first half of its fiscal year. The bad news is that the company’s strong product portfolio is outpacing the overall hearing market, which it says is only expanding at an anemic 3-4% unit growth rate worldwide.
Further, while William Demant captured a greater share of the global hearing aid market and grew its own organic revenue by four percent in the period, the company said that lower selling prices worldwide are leading to zero revenue growth for the overall hearing aid market.
Based on volume growth rates in the global hearing aid market of 2-4% in 2012 and negative development in the average selling price of the same magnitude, we now expect the global market for hearing aids to show zero growth in terms of value in 2012. (“Outlook for the 2012 financial year,” page 6)
William Demant’s Oticon and Bernafon hearing aid units are doing well enough, as are the premium hearing aid brands of other major global suppliers such as GN Store Nord (ReSound), Sonova Holding AG (Phonak, Unitron and other brands) and Starkey. But financial analysts are questioning the health of the overall hearing aid industry, as evidenced by Jyske Bank’s “sell” recommendation on William Demant’s publicly traded shares last week, in a research note entitled “Price pressure to continue.”
In technology markets, prices can be expected to go down at predictable rates as lower costs of processing power and economies of scale lower overall production costs. However, the lower prices are expected to lead to higher sales volumes. When unit volumes fail to increase rapidly enough to offset declines in the selling price, overall value can be flat or negative, even when the the number of products sold increases.
That’s why the overall trend for the hearing aid industry is troubling. It’s great there are more hearing aids getting into people’s ears, but at global growth rates of four percent or less, it will be a long, long time before tens of millions of consumers with untreated hearing loss get the assistance they need. In the meantime, manufacturers need even higher volume growth rates at lower price points to fuel profit margins robust enough to fund continued R&D.
So unless the hearing industry can find ways to spark higher growth in units shipped at the low and mid-range of the market, as well as develop and sell new premium-priced products with better performance, we will continue to see what should be a dynamic global market continue to stagnate.
The hearing industry today provides great service to the privileged few who can afford to pay thousands of dollars per hearing aid, but too many people with hearing loss can’t afford hearing aids, so lower prices are a must. But the lower prices have to be married to better products produced at lower cost so that growth rates can make up for the lower selling prices.
There is a glimmer of hope in William Demant’s analysis of the longer term trend. The company says the hearing aid industry overall is at the end of a product cycle, with new products and technologies expected to hit the market in late 2012 and 2013 that will add new value, support higher prices for premium products, and continue delivering high quality mainstream products at lower price points to a broader range of consumers.